WASHINGTON, Feb. 5 (UPI) -- Economists say the Chinese yuan is undervalued and its exchange rate gap against other currencies has actually widened since the yuan-dollar peg ended in 2005.
The experts, commenting on the United States taking up the sensitive currency issue, told The New York Times the yuan is undervalued by 25 percent to 40 percent against the U.S. dollar and other currencies -- which is seen as giving China an unfair trade advantage to run up huge trade surpluses.
The experts said the rate gap is actually wider than at any time since 2005 when, under pressure from the administration of former U.S. President George W. Bush, China ended its dollar peg. That allowed the yuan, also called the renminbi, to float within a narrow band against the major currencies.
Since July 2008, the yuan has appreciated 21 percent, and one U.S. dollar fetches about 6.9 yuan.
China rejected U.S. criticism of its currency policies. Its Foreign Ministry spokesman said international balance of payments and currency markets show "the value of the renminbi is getting to a reasonable and balanced level."
"The currency issue has the potential to become a very hot political issue," Kenneth G. Lieberthal, who worked on China policy in the Clinton White House, told the Times. "We're in significant danger of hitting a very rough patch in trade relations in the latter part of this year."
U.S. Treasury Secretary Timothy Geithner told the Senate Budget Committee Thursday he thinks China will let the yuan appreciate against the greenback because "they recognize it's important to them, in their interest as well."
